What is Insurance Premium Tax?

IPT really started making the headlines after a change was announced in the July 2015 Budget – it saw the rate increase from 6% to 9.5%. Why? It would raise an extra £8.1bn for the Treasury by 2021.

What is Insurance Premium Tax?

Insurance Premium Tax (IPT) is a Government-introduced tax on insurance policies including car, home, travel and pet which every insurance provider has to charge. There are two rates of IPT – standard and high. Introduced in 1994, the standard IPT rate was 2.5%, rising to 12% in the past 23 years. The higher rate remains at 20%.

When was Insurance Premium Tax introduced?

IPT has been around since the early ‘90s but has hit the headlines more in recent years due to the regular hikes and the impact it has on motorists’ insurance. The Government introduced IPT as it believed the insurance industry wasn’t paying enough tax - unlike other businesses, insurance isn’t subject to VAT.

While car and van insurance is subject to the standard rate of IPT, there is a higher rate at 20% - which is added to travel insurance, mechanical/electrical appliances insurance and other motor insurance including motor vehicles used for people with disabilities.

Is IPT VAT?

The most common form of tax in the UK – VAT – is not applicable to insurance, so the Government requires anyone buying insurance to pay IPT instead. Anyone buying an insurance policy will have the IPT included in their quote price, but the tax is passed onto HMRC by the insurance provider.

The MIB's chief executive, Ashton West, told the BBC: "It's early days, it's difficult to know exactly why, but we've seen insurance premiums rise in recent times and it's possible there is a link between the cost of insurance and people's propensity to drive without insurance.”

But driving without insurance is simply not worth the risks. As well as receiving six penalty points you could face an unlimited fine and even be banned from driving. For more information on the penalties associated with driving without insurance, see our guide: Is My Car Insured?

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